Separate payment income, investment sales and transfers
This is a U.S. federal tax guide for an individual taxpayer, with the same scope in Japanese. Japan’s crypto tax rules are different. The transaction’s economic substance and the taxpayer’s activity determine the result; the word “crypto” does not make every receipt a capital gain or every mining activity a business.
IRS Notice 2014-21, Q&A 1 and 6–10, treats convertible virtual currency as property and distinguishes service compensation, mining receipts and subsequent dispositions. When an asset held for investment is sold, exchanged or spent, proceeds and adjusted basis are compared. Compensation and eligible mining receipts first require an income valuation in U.S. dollars; that recognized value then matters to later basis.
| Event | What to record | Question to resolve |
|---|---|---|
| Sale or token swap | Units, proceeds, fees, acquisition basis | Capital asset or business inventory? |
| Payment for work / business mining | Receipt time, USD value, business expenses | Income and possible self-employment tax |
| Transfer between wallets owned by the same person | Both addresses, transaction hash, transferred lots | Prove continuing ownership; separately review assets used for fees |
| Staking / protocol rewards | Units, control restrictions, unlock time and USD value | When did the taxpayer obtain dominion and control? |
2026 transactions are not the same as forms received in 2026
The 2026 Form 1099-DA instructions distinguish gross proceeds from basis reporting. Covered broker reporting began with 2025 dispositions, with statements arriving in 2026. Basis reporting for 2026 transactions applies to covered assets under the instructions’ acquisition and custody requirements; it is not a promise that every exchange worldwide supplies every historical purchase price.
Reconcile broker statements with transfers and older purchases. A blank basis field is not proof that basis is zero; nor may a taxpayer invent a purchase cost. The IRS digital-assets reporting guide requires reporting taxable activity even without an information return and explains the digital-asset question on the individual return. A form arriving next year reports this year’s events, rather than moving income to next year.
Specific identification requires records, not just a software setting
The IRS transaction FAQs address basis within the relevant wallet or account. If identification requirements are not met, FIFO may apply. HIFO and LIFO labels describe a selection preference; they do not independently establish that specific units were adequately identified.
Notice 2026-20, section 3, extends temporary relief through December 31, 2026 for specified broker-custodied digital assets. It permits adequate identification through the taxpayer’s contemporaneous books and records under its conditions. This does not authorize choosing a favorable lot after seeing the year’s final prices, and the temporary rule should not be assumed to continue in 2027.
| Hypothetical sale of 0.5 BTC for $35,000 | Documented basis | Gain before fees |
|---|---|---|
| Earliest eligible 0.5-BTC lot | $20,000 | $15,000 |
| Another eligible lot, if adequately identified | $32,500 | $2,500 |
Both lots are assumed held in the relevant account and held more than one year. The $12,500 gain difference is arithmetic, not evidence that either lot can legally be selected for an actual transfer. Keep acquisition timestamps, quantities, cost and disposition identification together with the broker’s method and any reconciliation adjustment.
Rewards and complex DeFi need different evidence
Revenue Ruling 2023-14 addresses a cash-method taxpayer’s proof-of-stake rewards: value is included when dominion and control is obtained, including the exchange-staking situation described in the ruling. A later investment sale creates a separate gain or loss from the established basis. The ruling does not provide a universal tax classification for every liquidity-pool token, lending receipt, bridge or NFT.
For a liquidity transaction, record exactly what rights were surrendered and received, whether ownership changed, when rewards became available, and the valuation evidence. If a protocol’s records do not answer these questions, classify the transaction for tax review before filling the gap with a generic “DeFi income” total. A receipt on a block explorer alone may not establish usable control.
Recalculate the business-mining example
This editorial example assumes sole-proprietor business mining, $50,000 receipt income, $15,000 deductible electricity and $8,000 allowable depreciation: net profit is $27,000. Assume no wages using the Social Security limit, no additional Medicare tax, no QBI or other deduction, and all incremental income after the half-SE-tax deduction falling in a 24% bracket. The expenses and rate are assumptions, not deductions automatically available to every miner.
| Step | Formula | Amount |
|---|---|---|
| Net profit | $50,000 − $15,000 − $8,000 | $27,000.00 |
| SE-tax base | $27,000 × 92.35% | $24,934.50 |
| SE tax | $24,934.50 × 15.3% | $3,814.98 |
| Half-SE-tax income adjustment | $3,814.9785 ÷ 2 | $1,907.49 |
| Illustrative income tax | ($27,000 − $1,907.48925) × 24% | $6,022.20 |
| Combined illustrative federal tax | $3,814.9785 + $6,022.20258 | $9,837.18 |
IRS Topic 554 supports the 92.35% general base, the Social Security/Medicare components and the deduction for half of SE tax. This calculation retains precision until display; an actual return follows form rounding and the taxpayer’s wage and deduction limits. Mining that is not a trade or business must be classified separately.
Losses and the records needed to file
For an assumed $20,000 deductible investment capital loss with no gains or earlier carryovers, sufficient income and filing status other than married filing separately, Topic 409 generally limits the current offset against other income to $3,000. At an assumed 24% marginal rate that is $720, with an illustrative $17,000 carried forward. It is not an immediate $4,800 saving. Asset classification and any applicable loss-disallowance rules must be checked before claiming a deduction.
- Export trades, receipts, transfers and fees from every wallet and broker.
- Keep USD valuations and their timestamps alongside transaction hashes and ownership records.
- Reconcile opening lots, acquisitions, disposals and closing balances before importing totals into tax forms.
- Separate business income and expenses from investment disposals; use the applicable Form 8949, Schedule D, Schedule C and Schedule SE instructions.
- Document unresolved DeFi classifications and correct inconsistent broker information rather than assuming software output is a ruling.
Sources checked September 10, 2026. Crypto involves price, hacking and regulatory risks; this is not a purchase recommendation or individual tax advice. When using an exchange in Japan, check FSA registration. Investment disclaimer.
References
8- Notice 2014-21: property, payments, mining and business activity (opens in a new tab) IRS · 2014 guidance; checked 2026-09-10
- Digital assets: reporting and recordkeeping (opens in a new tab) IRS · checked 2026-09-10
- Instructions for Form 1099-DA (opens in a new tab) IRS · 2026 transaction-year instructions; checked 2026-09-10
- FAQs on digital asset transactions: basis and identification (opens in a new tab) IRS · transactions from 2025; checked 2026-09-10
- Notice 2026-20: temporary identification relief (opens in a new tab) IRS · 2026 notice, section 3; checked 2026-09-10
- Revenue Ruling 2023-14: staking rewards and dominion and control (opens in a new tab) IRS · 2023 ruling; checked 2026-09-10
- Topic 554: Self-employment tax (opens in a new tab) IRS · checked 2026-09-10
- Topic 409: Capital gains and losses (opens in a new tab) IRS · checked 2026-09-10
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